Legal Shareholder Protection and Corporate R&D Investment
Renmin University of China - Hanqing Institute
August 12, 2013
This paper investigates the effects of shareholder protection law on corporate R&D investment. I find that the institutional protection of shareholder benefits reduces both underinvestment and overinvestment in R&D projects. Legal shareholder rights significantly increase R&D investment for firms that may underinvest, but reduce R&D for firms that may overinvest. Shareholder protection further enhances the growth of firms in R&D intensive industries, and promotes the economic growth of innovative countries. The results consistently show that enforcing stronger legal shareholder protection can help firms achieve an overall more efficient capital allocation to productive R&D investment.
Number of Pages in PDF File: 60
Keywords: Legal shareholder protection, underinvest, overinvest, R&D
JEL Classification: G15, G31
Date posted: March 20, 2012 ; Last revised: August 15, 2013